Land trusts explained (lengthy) - Posted by John Merchant,JD,EMS
Posted by John Merchant,JD,EMS on May 10, 2002 at 02:36:33:
A land trust is just a Trust whose primary asset is a piece of RE. Since it’s normally in a different name than that of the beneficiaries, it’s a form of privacy for the Trust’s owners/beneficiaries, because the only thing recorded is the name and mailing address of the Trustee.
I know people who have a number of separate trusts, one for each major piece of RE they own. If this is done, and they were to be sued for an injury or death caused on or by one of the properies, their potential loss could pretty well be limited to the value of that property alone, because a trust is a legal entity aside from the beneficiary and an outsider couldn’t sue the beneficiary for something the trust might have done.
The Garn-St. Germain Act, a Federal Law, states that a borrower can deed his property to a Trust, then sell the beneficial interest in that trust to a new buyer…all without triggering the Due-on-sale clause in the Deed of trust or mortgage securing his 1st loan…has to be done as per the GSt.G act, to be found in Title 12 U.S.Code, chapter 13.
One has to do very carefully in complying with GStG Act, such as retaining some interest in the trust and not conveying the whole thing; and not using when the occupancy rights in a dwelling are to be changed…but all these things are set out for the reading in that Federal Law, which anybody is free to go look up and read in his/her nearest courthouse law library.
And a tip on Trust usage: if the Trust is well designed and set up, someone other than the real owner/beneficiary is originally established as the Trustee, so an outside 3d party is not even able to see and learn who the real beneficiary is. For instance, if Bill Jones appoints his attorney Harry Smith, to be the trustee, in The Ajax Trust, and then has Ajax Trust buy or take a deed, then the only thing an outsider might learn is that The Ajax Trust, Harry Smith Trustee, owns the property and pays the taxes on it. The outsider would have no way of knowing who the beneficiaries of the trust are.
If you’d check at your local deed recorder’s office you’d learn that lots of trusts own property, and the names of the trusts normally do not reveal the names of the beneficiaries…I have established several trusts for myself and my name is not to be found in any deeds or realty interests owned by my trusts.
I’ve seen the IRS totally bumfuzzled & frustrated about how to get to assets in a well designed trust because if it’s done right the Trust is virtually unattackable and a very good insulator against the beneficiaries’ creditors, etc.
The Trust as a legal entity is quite old, probably dating from 16th Century, and has been traditionally used by old wealthy families…Rockefellers, Morgans, Rothchilds, etc. in protecting family assets…and one of the salient features in an inter vivos (living) trust is normally & frequently that it’s designed to hold all the beneficiary’s major assets for his/her use; and then, upon the death of that beneficiary, it’s automatically converted into a Testamentary Trust with its new beneficiaries being the kids and heirs of the deceased person.
And all this is done privately, without any court probate, so it’s not in the newspaper or on TV.
Remember Howard Hughes? I understand his probate is still not wound up. If the old miser had wanted to make things easy for his heirs he could have used a trust like this and avoided all the hassle and publicity and a jillion dollars worth of attorneys’ fees paid by all those folks battling over his assets.
And there are many, very knowledgeable lawyers who do lots of trust creation and establishments. Just call around and find a Probate & Will practicing lawyer and he/she’ll know a great deal about the subject.
And unlike the whiz-bang seminar gurus would have you believe, the cost of creating a good trust for yourself is quite modest, usually just a few hundred dollars, and the forms for trusts are to be found easily in every law library.
Interestingly enough one of the big drawbacks in lots of trusts actually created, is that the beneficiaries have failed to follow through, and indeed they have NOT deeded and conveyed their assets into those trusts following their creations, and then they proceeded to die with the property still in their own names and no will ! And the trusts unused!
This fact is well known to the attorneys who do trusts and wills and it’s quite frustrating to them to see a client who has paid them to go to the trouble to create a well designed trust and then failed to utilize it.
Many attorneys who do them, will only agree to do them if the client agrees to simultaneously have the attorney deed and convey their major assets into the newly created trusts. This way, the attorney knows his trust is being utilized and he/she avoids family and heir complaints that might have later been made, had the attorney not insisted on those conveyances being done right when the trust was drafted and created.
As I recall, Nolo Press has some good how-to-do-it books on the subject of trusts, and these are written for laymen. You could find them in a few minutes on the internet and you’d be very knowledgeable inside an hour or two.